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The retail apocalypse is upon us. Over the last number of years, Amazon has been steadily stealing share from retail shops, department stores and malls. The coronavirus has contributed to the near-death blow for retailers dependent upon brick-and-mortar stores.
The financial decline of retail stores is due to other factors, in addition to the disruptive “Amazon effect.” A combination of the overabundance of malls, high rent prices, bankruptcies caused by overleveraged buyouts by private equity firms of retailers and a bet-the-business dependency on holiday shoppers. Growing trends of fast fashion, business casual at the office, working from home and the shift to spending money on experiences rather than stuff added to the rapid decline in the fortunes of the brand name stores.
At first, household-name retailers, such as Macy’s, the Gap and Neiman Marcus, temporarily closed their doors to prevent the spread of the coronavirus. There was hope that the outbreak would quickly be contained, but that unfortunately has not happened. Things grew dire for the department stores as people were told to stay indoors. The situation will worsen for these stores now that the social-distancing guidelines have been extended to April 30 rather than Easter, which President Donald Trump said was “just an aspiration.” The goal posts will probably be pushed back further to the summertime, if not longer.
Retailers in the United States have closed about 9,302 stores in 2019. According to Neil Saunders, managing director of GlobalData Retail, more than 190,000 stores have now temporarily closed.
With the stores’ closure, sales have fallen off a cliff. In response to the dramatic lack of business, we are witnessing a tidal wave of retailers announcing that they will furlough tens of thousands of employees. A furlough differs from a layoff. It's an unpaid leave of absence. A worker technically still has a job, but they don’t usually earn any wages. The hope for both the employer and employee is that conditions will improve and the people can return to their jobs and get paid.
Macy's has been in business since 1858 and employs 125,000 people. The retailing giant now says that it will furlough most of its workforce. The department store chain will operate with a skeleton staff to maintain basic operations. Its sales have plummeted as 600 of Macy’s retail locations were closed.
The Gap announced that it would furlough a majority of its workers—80,000 out of 129,000 employees. This will include the company’s other brands, such as Banana Republic and Old Navy. Neiman Marcus will furlough most of its 14,000 employees amidst talks of a possible bankruptcy filing.
Designer Shoe Warehouse just furloughed 80% of its workers.
Department store Kohl's announced it will furlough 85,000 of its 120,000 employees. Rent the Runway “laid off its entire retail staff via Zoom yesterday” and H&M is strongly considering downsizing tens of thousands of workers.
The job losses are bad news for the workers, employers and the overall economy. About 20 to 25% of the nation’s workforce is in retail. With less people working, there will be less spending and the economy will suffer. According to a search on Indeed, the job aggregation site, 274,815 résumés were posted by “retail” workers this month.
Investment bank Cowen & Co, in a research report, predicted that department stores only have sufficient cash available to survive for another five to eight months if their stores remain temporarily closed. There are concerns that the use of the term “furlough” is simply a cover for firing people, as not to overly alarm the impacted workers and the general public.
However, there is a bright spot in retail. In response to the coronavirus, thousands of new jobs have been created by Walmart, Kroger, CVS, Amazon and Instacart. Hopefully, the outbreak can be contained in time. Then, the department stores may have a chance to reopen their doors, recoup customers and bring back furloughed workers.
